Northern Italy and Alitalia

Good money after bad

Why Milan resists any sale of Alitalia to Air France-KLM

ITALIAN taxpayers learnt on April 22nd that they had just lent €7.50 ($12) each to a near-bankrupt company. The outgoing centre-left government nodded through a loan of €300m to Italy's national flag-carrier, Alitalia, which is debt-laden and losing €1m a day. Normal business criteria have rarely mattered for Alitalia. But this time such considerations have been entirely blown away by the Italian election. The future of Alitalia will now be settled by politics, and maybe diplomacy. It presents Silvio Berlusconi, the prime minister-elect, with his first big challenge. And it constitutes an early test of his commitment to economic liberalism.

Romano Prodi, who will remain Italy's prime minister until early May, convened his cabinet after Air France-KLM, the only firm ready to buy Alitalia, withdrew its bid. It gave no reasons, but they are not hard to guess. Two conditions for the bid were approval by trade unions and by the incoming government. Air France-KLM secured neither. Talks with the unions broke down on April 2nd. One reason was that Mr Berlusconi had already called the bid “offensive” and announced an alternative deal with a consortium that would guarantee the airline's italianita.

His opponents accuse him of dreaming up a non-existent counter-offer so as to play the nationalist card in the election. He insists that there are interested investors, but that they need time to prepare an offer. And since Alitalia is running out of cash (at the end of March, it had only €170m in the kitty), a loan was essential.

Mr Prodi was only too happy to extend one. It dumps the question of Alitalia's future squarely into Mr Berlusconi's lap (although it may fall to Mr Prodi to persuade a sceptical European Commission that a loan to an otherwise insolvent company does not constitute illegal state aid). The outgoing government had contemplated a sum of, at most, €150m. But the loan was doubled at Mr Berlusconi's request.

Mr Berlusconi has dressed up his intervention in terms of national self-respect. Even after the election, when his attitude to Air France-KLM had mellowed, he was demanding that they agree to a new, three-country airline with Italy at the top table. One possible counter-offer may come from Moscow, where Aeroflot said it was awaiting proposals from Italy following an “instruction” by President Vladimir Putin. Mr Putin met Mr Berlusconi at his villa in Sardinia on April 17th.

In the background is a tangle of interests. Air France-KLM wanted to put Alitalia's only hub at Rome's Fiumicino airport, shedding its commitment to Milan's Malpensa. On March 31st, anticipating a change of ownership, the airline scrapped 886 of its 1,238 weekly flights from Malpensa. But the move is contested by businessmen in Lombardy, the region round Milan from which Mr Berlusconi himself springs. Antonio Colombo, director-general of the employers' federation, Assolombarda, notes that Lombardy accounts for 30% of Italy's exports. The shift to Fiumicino has meant losing flights to such places as Dubai, Mumbai and Shanghai.

“Save Malpensa” also became an electoral battle-cry for the Northern League, which handily increased its vote in the election and could yet hold the Berlusconi government to ransom. The League's leader, Umberto Bossi, is already flexing his muscles. This week he claimed (and Mr Berlusconi promptly denied) that he had secured for his party a deputy prime-ministership and the interior ministry in the next cabinet.

Mr Colombo says that the real objection to Air France-KLM's bid was that it bound the government to respect bilateral accords with countries outside Europe's “open skies” agreement. “That meant there was no possibility of other companies filling the gaps left at Malpensa by Alitalia.” Without direct links to countries such as India and China, Milan's attractiveness as a business centre would suffer. So would its role as an exhibition venue, an irony since it has just won the contest to host the World Expo in 2015. Alitalia's italianita is not the only national interest at stake in this saga.